Author Topic: Economics Culture  (Read 1778 times)

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Offline waldo

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Re: Economics Culture
« Reply #165 on: August 22, 2020, 11:43:12 am »
per UBC Econ Prof Kevin Milligan: Don’t Worry About the Federal Deficit --- Politicians often argue that government debt will cause hardship for future generations. They’re wrong



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But won’t taxes have to rise? At the risk of belabouring the analogy: if our children are saddled with the mortgage we take out now, won’t they need to raise funds to pay it down? No. When debt growth is modest and interest rates are low, the economy grows faster than the cost of servicing debt. This (though politicians would have you believe otherwise) is Economics 101: what matters is not the absolute size of the debt but its size relative to the country’s economy overall. As with the financing of your home, there isn’t such a thing as a “big” or “small” mortgage per se—it entirely depends on your income. Economists use the debt-to-GDP ratio, which measures a country’s debt burden relative to its national income, to assess this for Canada’s economy. When we think of the fiscal—or moral—consequences of our debt policy on the next generation, the debt-to-GDP ratio is the right guidepost. And a responsible fiscal policy ensures that the debt-to-GDP ratio does not grow, not that we have no debt, or run no deficits, at all.
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Over the five years from 2009 to 2014, Canada added $158 billion to the federal debt—which sounds like a lot, but our economy’s size was closing in on $2 trillion at the time, so the crucial debt-to-GDP ratio didn’t move much. We did add $71 billion of debt over the last four years—but the debt-to-GDP ratio actually fell by 1 percent over that period, since the economy grew more quickly than the debt did. Debts rise and fall, but there is no inexorable march to crisis that is unleashed by allowing some degree of discretion on deficit spending or the debt that ensues. We should just accept that the debt battle has been won and move on.